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Thinking Big: Energy Efficiency as the First Priority

How big is the potential for energy efficiency? At first, the only serious answers were provided by environmental advocates and national laboratories, and for credibility we had to be “conservative”—that is, to provide a low-ball estimate. More recent studies by the National Academy of Sciences, the American Physical Society, and McKinsey & Company followed the same pattern. For each of the sectors they analyzed, additional savings potentials weren’t counted due to technology questions, or because they were uncomfortable with the topic (for example, the savings from Smart Growth neighborhoods).

Notwithstanding this timidity, they showed that efficiency could cut energy use in the United States by 30% compared to trends, and by about 15% in absolute terms (to about 85 quads per year – as a nation, we now consume about 100 quads and this is often projected to grow to about 115) in a period of 20 years. This is a big number, far bigger than any new source of energy supply, and comparable to the sum of all new potential sources of energy supply.

But they still didn’t answer the question: “How big is the potential for energy efficiency?” Instead they tried to answer the question “What is a reasonable lower bound for efficiency savings that everyone ought to agree on?”

Three years ago I felt the need to answer the question directly: “how much energy could we save through cost-effective efficiency if we really tried hard?” The results, published in Invisible Energy, were that the answer depended critically on one key assumption: what rate of annual improvement in technology could we count on? Because for energy efficiency, as for any other technology field (smart phones, digital cameras, data storage, etc.), the market success of one generation of technology leads to competition for who can best design the next generation.

I found, using an extremely simple model, that the U.S. could reduce its energy use to the range of 30-65 quads per year in 2050, depending on how fast we can expect efficiency technology to improve. Recall that this compares to about 100 quads now.

If we are pessimistic and just project extending the rate of improvement we have already achieved over 30+ years for energy uses where we were trying to be efficient (at least some of the time), the model projects 65 quads per year (even using the low end of estimates for what we have already accomplished). If instead we assume we can double this rate by more consistent effort—in other words, having good efficiency policies for 40 of the next 40 years instead of 20 out of 40--the model projects 30 quads per year.

I assumed that if one could construct a much more detailed model that with similar assumptions it would lead to the same conclusions. So I was happy to see the recently released study by the American Council for an Energy-Efficient Economy (ACEEE), “The Long Term Efficiency Potential: What the Evidence Suggests”, which did precisely that. ACEEE constructed a detailed energy and economic model, and explored what the consequences would be of adopting technologies that we can already describe in detail and estimate costs for.

ACEEE’s more ambitious scenario produced an energy demand of 50 quads per year for 2050, about halfway between my two estimates. The fact that it is higher than my more ambitious estimate is exactly what one would expect, because it did not try to quantify upstream industrial energy savings or the transportation savings from serious implementation of smart growth principles, as California is already committed to doing as a result of the Sustainable Communities and Climate Protection Act of 2007. Nor did it explicitly address continual improvement.

One thing the ACEEE study did that plows entirely new ground is to estimate the economic benefit of advanced efficiency goals. It found that the 50 quad scenario would generate almost 2 million new jobs. And it increased overall national GDP by $200 billion annually while saving consumers and businesses $16 trillion (cumulatively till 2050). Sixteen trillion dollars! That’s more than the whole country produces in a year.

This scenario ends up with efficiency producing more energy than all sources of supply combined, and accumulated over time. And it does so with big improvements to the economy. As I noted in my previous blog, achieving these goals requires strong action by governments at all levels and by the private sector. Big steps forward that are not even controversial could be taken by Congress, which can pass a handful of bipartisan bills, and by the Administration, which can reform home mortgage underwriting rules to enable new housing construction in the smarter growth neighborhoods that the market now prefers and that make housing more affordable. Three significant bipartisan bills are the:

Cut Energy Bills at Home Act introduced by Senators Olympia Snowe (R-ME), Jeff Bingaman (D-NM) and Dianne Feinstein (D-CA); it will provide a tax credit for home energy efficiency retrofits.

Energy Savings and Industrial Competitiveness Act introduced by Rob Portman (R-OH) and Jeanne Shaheen (D-NH), which adopts a number of important efficiency policies, including a set of appliance efficiency standards that the industry also supports.

There are also a number of other legislative actions that have bipartisan support, such as extending and reforming tax incentives for efficient appliances, new homes, and commercial buildings, as well as for renewable energy sources.

ACEEE’s bold (yet careful) study underlines the need for thinking big and taking bold action now. How long do we want to wait for those 2 million new jobs?